Small Cap Value Report (Fri 24 Apr 2015) - FCCN, SAL, CAMK

Good morning! Apologies for my duvet day on Friday, which was due to a group of us propping up the bar until about 3am the night before, at the Mello Workshops event in Peterborough. At dinner, I was delighted to be seated next to Gervais Williams of Miton (LON:MGR) so we discussed a number of small caps. I was moaning about the profit warning from Shoe Zone (LON:SHOE) and Gervais commiserated, saying that his firm holds 15% of the company, so he shares my pain, but on a bigger scale!

(at the time of writing, I hold a long position in Shoe Zone)

I see that shrewd trader Robbie Burns (aka. Naked Trader) also got caught on Shoe Zone, and he's posted some scathing comments about the company in his online trading diary. A consensus is emerging that the company's weather-related excuse for the profit miss is unsatisfactory, and directly contradicts what they said on 14 Jan 2015, so a proper explanation is needed I think. He reckons the shares are starting to look interesting as a bargain buy, and I'm leaning towards that view myself now. Risk/reward is starting to look interesting again with them having fallen all the way back down to 170p. It's looking good value on the lower, revised broker forecasts now. I'd be happier paying 150p for a top-up though, so let's hope it drops a bit more to give me a more favourable buying opportunity.

Profit warnings really are the bane of our lives, in the small caps space. You can't avoid them, so it's a matter of just dealing with them logically. It amazes me how overly emotional some investors become when a stock warns on profit, some of the things you read on Twitter for example are astonishing. It's part of life in this space, get used to it!

When a stock does warn on profit, we have to assess how significant it is, and the only thing that matters is whether the new, lower share price, now represents good value (in which case one should buy more), or whether the company is in a downward spiral and there is more bad news to come (in which case one should sell immediately). The market doesn't know or care what price we paid for our shares, and I agree with the gentleman…

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French Connection Group PLC designs and supplies branded fashion clothing and accessories for men and women. The Company operates retail stores and concessions in the United Kingdom, Europe, the United States and Canada and also operates e-commerce businesses in each of those territories. Its principal brand is French Connection, which designs, produces and distributes branded fashion clothing, accessories, such as toiletries and fragrances, shoes, watches, jewelry, eyewear, furniture and homeware through its distribution channels: retail stores, e-commerce, wholesale and licensing. Its other brands include, Great Plains and YMC. The Company operates in approximately 50 countries around the world. The Company's subsidiaries include French Connection Limited, French Connection UK Limited, French Connection (London) Limited, Contracts Limited, French Connection Group Inc., French Connection (Hong Kong) Limited, French Connection (Canada) Limited and YMC Limited. more »

SpaceandPeople plc is a United Kingdom-based media specialist company. The Company is engaged in marketing and selling of promotional and retail licensing space on behalf of shopping centers and other venues throughout the United Kingdom, Germany, France and India. The Company's segments include Promotional Sales, Retail, Head Office and Other. The Company markets, sells and administers promotional space in a range of footfall venues across the United Kingdom, including shopping centers, theme parks, garden centers, retail parks and airports. The Company offers a service covering from consultancy services to the provision and management of retail merchandising units in shopping centers. It enables venues to market, administer, promote and sell their promotional space. Its subsidiaries include MacPherson & Valentine Limited, SpaceandPeople GmbH, Retail Profile Holdings Limited, POP Retail Limited, Retail Profile GmbH, SpaceandPeople India Pvt Limited and S&P+ Limited. more »

Paul - I hadn't realised you were new to public speaking - it certainly doesn't show. I went you your balance sheet presentation at Peterborough and aside from the content (which was excellent) the presentation was one of the better ones at the event. Your obvious enthusiasm for the topic really provides you with an interesting and engaging presentation style.

I agree with Glaws2 you couldn't tell you were new to public speaking and looked a real natural, and enjoyed the balance sheet presentation. I think the profit warnings issued this week by Shoezone and French Connection highlight the importance of balance sheet strength, and that they can recover after a setback.

The spreadbetting and CFD presentation was really honest and I think made private investors appreciate the dangers of using leverage when investing.

Camkids (LON:CAMK) is mentioned in FT Money today as one of four "hot microcaps" that pass Algy Hall's stock screen The other three are 600 group (LON:SIXH) Sylvania Platinum (LON:SLP) and J Smart & Co (Contractors) (LON:SMJ) . I hope FT readers also read Paul's blog.

Yours were really interesting talks at Mello. Well done. The sessions generally were well organised and well presented. The speakers were almost all very informative and entertaining.

My only observation was that most speakers seemed to have more to say than the time allowed. The workshop offered great value in terms of content, but perhaps too much. A bit more time for each speaker, with bigger gaps between sessions might have meant speakers could finish what they wanted to say, and attendees wouldn't have to interrupt sessions as they transferred from room to room.

Personally I think it's down to speakers to ensure that their material is the correct length for the slot, with enough time for Q&A at the end. I did a run through of my talks at home, and timed them, to make sure they were the correct length, and had a timer on my iphone on the desk, on the day, to ensure I didn't waffle on too long. So mine were perfectly timed!

Oh yes, I'd forgotten about that!! Apparently they did a fire alarm test that morning at the Mello Events venue, and the alarm sound was the same as my phone alarm, so when my phone alarm sounded to tell me to wind up the presentation, people thought they had to evacuate the building lol!!

Well, at the risk of being controversial (!) - this is the big problem with systematic approaches - they can so easily miss the bleedin' obvious (that the accounts are not real).

So I remain of the view, after a stimulating debate with Ed, David, Leon, and Richard at Peterborough, that man + machine combined is the best way forward overall. Using a system can do clever things, but can also be remarkably dumb if a key parameter which requires human skills (i.e. spotting frauds) is omitted from the programming.

Combine the two - a screening system to come up with a shortlist, and a shrewd human, or team of shrewd humans, to filter out the dross that has fooled the system, and I think you have a winning formula.

Hello Paul. A slightly belated contribution, as I have been away this weekend.I went to two of your presentations at Peterborough. What shone through was that what you delivered were obviously your true views, without spin/ undue polish. The session when you went through your personal nightmare when the markets last collapsed must have been particularly hard for you to present, because the content was pretty raw. However, it was also very instructive. I just wanted to say, well done.

Rateable values are a matter of public record; in the case of French Connection's Oxford street store, you can find the rateable value here, so £1.69m multiplied by the standard 49.3p in the £ gives a business rates charge of £833k.

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I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »